My mom passed away end of 2011. She and I have a joint CD (5 year) that matures in 2015. She did not report taxes last 2 years of her life due to living below poverty level and very small Social Security income, her kids paid her expenses. The CD reported interest for 2011 of a little over
300.00 - should I start to report on this even though the bank has reported it for her social security number as interest income ? Does it matter which month she passed away and what about the first year interest paid for 2010 - should I also file amended return for 2010 ? I understand I can present death certificate and give the bank my SS number and then they will report interest in my name going forward but I can also leave the CD as it is since it is already a joint name (1st name OR 2nd name format).
You should NOT leave in joint names, especially if her name is listed first and is the one used for reporting.
You CANNOT put any interest PAID AFTER her death on her tax return. It either goes on YOUR return, a Decedent's Estate Return (Form 1041 - but only needs to be filed if income paid after death is $600 or more) OR on the return of the final beneficiary.
As John Levine noted, depending on HOW the account was titled - Joint Tenants in Common (the normal default used by most financial institutions unless instructed otherwise) or Tenants with Rights of Survivorship. AND you have to look to see who put money into the account. Just because your name is on the account doesn't automatically make it yours.
For example, if mom put $10K into the account and you put in nothing and the account is titled Tenants in Common, on her death the account becomes part of the decedent's estate and has to be distributed either according to her will OR to laws of intestacy for your state - BUT ONLY AFTER the money is used to settle any debts she may have.
The better way to handle bank and investment accounts is to use a POD or TOD (Pay on Death or Transfer on Death) beneficiary designation. This allows the money to pass outside the probate process and beyond the reach of most creditors. Its also helpful to put someone on the account as a courtesy signatore on the account - this lets someone sign check and access the account as a matter of convenience for the account owner.
Gene E. Utterback, EA, RFC, ABA